Paycom Software (NYSE:PAYC), a company focused on payroll and human resources software, reported its third-quarter results on Tuesday, Oct. 31. The company produced revenue that topped its own expectations and raised guidance yet again. Shares were down about 8% as of 1:30 p.m. Wednesday, apparently because guidance was below analyst expectations.

Let's dig into the details to get a better sense of what happened at Paycom this quarter.

A paycheck, pen, and calculator on a table.

Image source: Getty Images.

Paycom Software Q3: The raw numbers

Metric Q3 2017 Q3 2016 Year-Over-Year Change 
Revenue $101.3 million $77.3 million 31%
Adjusted EBITDA $30.7 million $18.2 million 69%
Non-GAAP net income  $17 million $9 million  89%
Non-GAAP EPS $0.29 $0.15 93%

Data source: Paycom Software. 

What happened with Paycom this quarter?

  • Paycom's quarterly revenue topped $100 million for the first time ever. Total revenue of $101.3 million represented growth of 31% year over year. That came in ahead of management's guidance range.
  • Adjusted EBITDA of $30.7 million came in much higher than management had projected. Management credited the big jump to better productivity among the company's sales and marketing teams.
  • The huge growth in non-GAAP net income was partially owed to a lower income tax bill.
  • Non-GAAP EPS growth outpaced net income growth in part because of stock buybacks. What's more, the $0.29 in non-GAAP EPS was much higher than the $0.19 Wall Street analysts had expected.
  • Paycom spent $19.3 million on buybacks during the quarter. 
  • Paycom ended the quarter with $67 million in cash and $34.4 million in debt. 

What management had to say

Paycom CEO and founder Chad Richison said that he was "pleased" with the strong quarterly results and provided some commentary on why his company continues to win:

We are able to achieve these results by remaining focused on providing the best possible user experience. With this goal in mind, we continue to enhance our value proposition ... by creating our own content and releasing 10 learning courses to clients who have our learning management system, or LMS, module. These courses were designed and built internally at Paycom, and the feedback we have received from clients regarding our proprietary content has been tremendous.

He also heaped praise on the company's ability to grow quickly while returning value to shareholders:

We recently completed our second $50 million stock repurchase plan. And today, I'm pleased to announce that our board has reloaded and increased our plan to allow us to repurchase an additional $75 million of common stock.

In regards to the hurricanes during fall 2017, Richinson said the company had to evacuate seven of its sales offices for a short time. However, all of those offices are now back online and none of its clients' payrolls were impacted by the events.

Looking forward

Here's what management is projecting for the fourth quarter:

  • Total revenues in the range of $111.5 million to $113.5 million. That represents growth of 28% at the midpoint.
  • Adjusted EBITDA  in the range of $26 million to $28 million. That represents growth of 24% at the midpoint.

And for the full year 2017:

  • The revenue guidance range was increased to $430.5 million to $432.5 million. That's a $1 million bump over the company's prior outlook.
  • An adjusted EBITDA range of $131 million to $133 million. That's a $7.5 million raise of the company's prior guidance.

While Paycom's guidance remains strong in absolute terms, the midpoint of management's fourth-quarter revenue guidance range came in a bit below what Wall Street was expecting. That caused shares to sell off in the morning trading session following the report. 

Short-term price movements aside, the company's results continue to prove that its all-in-one HR solution is helping Paycom win market share away from incumbent payroll processing providers.

Brian Feroldi owns shares of Paycom Software. The Motley Fool owns shares of and recommends Paycom Software. The Motley Fool has a disclosure policy.